Once Moratorium Is Declared Against Company, Modes Of Execution Under Consumer Protection Act Stand Interdicted: Supreme Court

The appeals before the Apex Court challenged the judgment of the National Consumer Disputes Redressal Commission dismissing the Execution Applications filed by the appellant against the respondents (directors/promoters of M/s. Ansal Crown Infrabuild Pvt. Ltd.).

The Division Bench of Justice Dipankar Datta and Justice Augustine George Masih held, “Since, the judgment and order in CC/86/2018 and CC/2600/2018 had not been passed against the respondents 2 to 9, at the stage of execution, the order passed against ACIPL could not be enforced against them. It is settled law that execution must strictly conform to the decree.”

“Once a moratorium has been declared against the judgment debtor company, i.e., ACIPL, the modes of execution contemplated under Section 71 of the Consumer Protection Act, 2019 including attachment and sale of movable or immovable property, attachment of bank accounts, or withdrawal of decretal amounts from the accounts of the judgment debtor, stand interdicted. Execution proceedings cannot, therefore, be permitted to continue indirectly against the respondents 2 to 9, who are neither judgment debtors nor guarantors, and against whom no independent liability under the order allowing the complaints has been established”, it explained.

Factual Background

The Appellant is an association of flat buyers which entered into Flat Buyer Agreements with ACIPL for units in Ansal Crown Heights. Vide the individual builder buyer agreements, ACIPL promised to handover possession of the apartments within a period of 36 months from the date of execution of the agreements, which expired for all the buyers in the time period from December, 2013 - December 2015. Possession of the flats not having been delivered, the appellant instituted two consumer complaints. One was filed on behalf of 45 flat buyers, and the second on behalf of 20 flat buyers. The respondents were ACIPL and its directors/promoters.

While admitting the case, the NCDRC directed that the proceedings would continue only against ACIPL and not the other respondents. Accordingly, the appellant was directed to file an amended memo of party impleading ACIPL as the sole respondent. Subsequently, ACIPL was arrayed as the sole respondent, in conformity with the earlier admission order, and directions were issued to ACIPL to complete the project and hand over possession of the flats to the buyers, or, alternatively, if the allottees were unwilling to wait for possession, ACIPL was directed to refund the entire amount deposited.Owing to ACIPL not complying with the said order, the appellant initiated proceedings for execution. During this time, the corporate insolvency resolution process was initiated under the Insolvency and Bankruptcy Code, 2016, against ACPIL, and a moratorium had come into force.

The NCDRC adjourned proceedings sine die. Appellant then challenged the sine die adjournment granted by the NCDRC by filing Civil Appeals, which were allowed. The Court directed that the execution proceedings may continue against the respondents. It was held that the moratorium under Section 14 of the IBC shields only the corporate debtor and does not extend to directors/promoters. Upon revival, the appellant pressed the execution applications against the respondents. The NCDRC dismissed the execution applications insofar as they sought to proceed against the respondents, holding that the order is executable only against ACIPL, the sole respondent in the original complaints.

Reasoning

The Bench was of the view that once the lis stood consciously and finally confined to ACIPL, the adjudication culminated in an order binding exclusively ACIPL and none else. The order neither recorded any determination of liability against the other respondents 2 to 9 nor contained any direction requiring them to perform or refrain from performing any act. “In the absence of pleadings, adjudication, or findings against them, the essential foundation for fastening liability upon the respondents 2 to 9 is plainly lacking”, it added.

“It is trite that a decree cannot, by process of execution, be employed to shift or enlarge liability so as to bind persons who were neither parties to the decree nor otherwise legally liable thereunder. Where the judgment debtor is a company, the liability of its shareholders or joint venture partners remains confined to the extent of their shareholding or to such guarantees or undertakings as may have been expressly furnished by them”, it explained.

The Bench also concurred with the approach adopted by the NCDRC that the CP Act envisages a complete adjudicatory process founded on service of notice, pleadings, opportunity to contest, leading of evidence, and recorded findings of fact and law. “These are not mere procedural formalities but substantive safeguards that precede the fastening of liability. In the present case, no such adjudicatory exercise was undertaken qua the respondents 2 to 9”, it added.

The Bench further stated that the lifting of the corporate veil is an exceptional measure to be resorted to only upon a clear finding that the corporate personality was abused for fraudulent or dishonest purposes. “Such a finding must be preceded by specific pleadings and a determination on merits. No such allegation of fraud or misuse of the corporate form was either pleaded or established before the adjudicatory forum. In the absence of a prior and reasoned determination justifying disregard of the corporate personality, the directors/promoters cannot be exposed to personal liability through execution”, the order read.

The Bench found that the impugned order of the NCDRC, which examines the issue of executability against the respondents 2 to 9 on its own merits and declines to proceed against them in the absence of any legal or factual basis for personal liability, was not inconsistent with the order of the Court. As per the Bench, the NCDRC committed no error of law or jurisdiction in declining to execute the order against persons who were admittedly not parties to the complaints. “The order binds only ACIPL. Appellant did not challenge the order dated 25th January, 2018 of the NCDRC declining to issue notice to the respondents 2 to 9 and directing it to file amended memo of party with ACIPL as the sole respondent, and cannot now enlarge the order through execution”, the Bench held while dismissing the appeal.

Cause Title: Ansal Crown Heights Flat Buyers Association (Regd.) v. M/S Ansal Crown Infrabuild Pvt. Ltd. & Ors. (Neutral Citation: 2026 INSC 51)

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